Income Tax Act 2007 section 329

Conversion of convertible shares and securities

Section 329 deals with how shares acquired by a VCT (the investing company) through converting its existing convertible shares or securities can continue to be treated as meeting the qualifying holdings requirements.

• When an investing company exercises a conversion right to exchange convertible shares or securities for new shares in the same company, the new shares can inherit the qualifying holdings status of the original convertibles, provided certain conditions are met.
• The convertibles must have been originally issued to the investing company, held continuously until conversion, and the conversion right must have been attached from the outset and never varied.
• The conversion is treated in the same way as a share exchange under section 327, so the existing rules for determining whether qualifying holdings requirements are met carry across to the newly issued shares.
• For the eligible shares proportion test under section 289, the new shares are valued immediately after acquisition at the same amount as the last valuation of the convertibles they replaced.

---